Neoliberalism is about more than free markets

The common mistake about neoliberal ideology is to think that it is about nothing more than unrestricted free markets.

In fact, neoliberalism is about unrestricted accumulation of capital.

Concentration of wealth at the top is an intended, not an unintended, consequence.

The idea is that of classical economics’ three sources of wealth – land, labor and capital – it is capital that is the force multiplier.

Capital investment, as Karl Marx recognized in the Communist Manifesto, is what has increased the total amount of wealth available to humanity in the modern capitalist era.   What neoliberals say is that this process can and should continue, with capital remaining in private hands.

That is why neoliberals advocate upper-bracket tax cuts and government austerity, and oppose minimum wage laws and labor unions.   Working people only waste their wages on their personal needs, neoliberals think; capitalists invest and increase the wealth of society.

That is neoliberals they advocate bailing out banks in the USA and Europe, while insisting that home mortgages, student loans and the debt of nations such as Greece by repaid to the last penny.

There is logic to this, once you accept the underlying assumptions.  The wrongness of this idea is shown, not by economic theory, but by the history of the last 40 years.

We have had increasing austerity and increased concentration of wealth in the upper brackets, but the investment needs of the USA and other advanced countries are unmet.


Friedrich Hayek, often considered the father of neoliberalism, had insights that were true and important.  One was that the working of the law of supply and demand within a free market was a more efficient form of information processing than ever would be possible with a centrally planned economy.

Even successful examples of planning, such as the Tennessee Valley Authority, depended on being embedded in a market economy out of which they could hire employees and buy from suppliers.

His great fear, as expressed in The Road to Serfdom, was that if a democratic government took on the responsibility of meeting the needs and wishes of its citizens, it would soon suffer gridlock, because there is no upper limit to the demands that claimants can make.

And the solution to gridlock would be a strongman, such as Hitler, whose power didn’t depend on appeasing interest groups.

Ronald Reagan and Margaret Thatcher, however, found a different solution—a new politics based on resentment of what other (non-rich) claimants were getting.

Meanwhile Hayek went from claiming that the free market is the only way to avert fascism to endorsing fascism (in Chile) as the only way of protecting the free market.   I don’t know whether that represented a hardening in this thinking, or greater openness about what he had thought all along.


I define capitalism, as Karl Marx did, as a political and economic system dominated by owners of financial assets.  I define free enterprise, as Adam Smith did, as a system subject to the free market and the law of supply and demand.   Under these definitions, capitalism and free enterprise may be compatible, but they are not the same thing.

Adam Smith’s “system of natural liberty” is incompatible with bailouts of failed banks and manufacturing corporations.   He advocated competitive free markets as a means of checking the power of corporations, which in his day were mostly government-chartered monopolies.

John Maynard Keynes believed in free markets.   He favored the use of fiscal policy and inerest rates to avoid or mitigate the boom-and-bust cycle.   There is nothing in Keynesianism that interferes with the working of supply and demand.

Thomas Piketty believes in free markets.   He favors a “wealth tax” to set limits extreme concentrations of wealth.   There is nothing in this that interferes with the working of supply and demand.

Easy bankruptcy laws are compatible with free markets, but not with neoliberalism.  Strong consumer cooperatives, producer cooperatives, labor unions and employee stock ownership plans are compatible with free markets, but not with neoliberalism.  Vigorous enforcement of anti-trust laws is essential to free markets, but incompatible with neoliberalism.

Designating corporations and institutions as “too big to fail” or “too powerful to prosecute” is incompatible with free markets, but perfectly compatible with neoliberalism.

My own economic philosophy is pragmatic.  I do not believe in unrestricted free markets, although I do think a principled free enterprise system probably would be better than what we have now.   I’m in favor of whatever serves the common good, but always, as Adam Smith would add, subject to the law of justice.


Neoliberalism: the idea that swallowed the world by Stephen Metcalf for The Guardian.   This post is a response to Metcalf’s article.



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4 Responses to “Neoliberalism is about more than free markets”

  1. simonjkyte Says:

    An interesting post – thanks for it


  2. Josh Says:

    Right. A principled free market system is not what neoliberalism espouses. I read the VERY interesting article attached to your post by Stephen Metcalf, and I agree with both of you, that the virtue of JUSTICE is definitely missing from neoliberalism. Its an ever increasing race for low wage labor, as if it were some form of Gresham’s dynamic.


  3. oiltranslator Says:

    Do you remember who else placed the Common Good before the Individual Good?


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